It's 9 O'Clock Somewhere

Published Jun 10, 2022, 12:13 PM

As workers retreat from big city offices once again due to new Covid sub-variants and other factors, we examine crime statistics with Justin Fox. We also look at the history of remote work with Stephen Mihm - turns out it all started as one giant leap for mankind. Alexis Leondis explains how someone on a quarter mil a year can still feel the pinch. And John Authers considers the odds the economy experiences a soft landing while markets experience a hard one.

Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week, if the FIT successfully engineers a soft landing that does involve companies having to pay more to borrow for quite an extended period of time and finding it that much harder to pass costs on. John author Is on how a soft landing for the economy does not mean a soft landing necessarily for markets. Also Alexis Leanders and how exactly you can be making a quarter of a million dollars a year and still be living paycheck to paycheck. Later, we'll speak with Stephen Mim on the history of remote work. As the number of workers back in offices drops once again, it's partially due to a COVID resurgence. Sure Another factor, though, the fear of crime in big cities such as New York. So let's kick off this week with Justin Fox. He's been digging into the available data for some clarity on just how dangerous our metropolis is. So Justin I think there's a bit of a trope out there that crime is higher in New York City and that perhaps even the city is going back to the nineteen eighties. Is there any truth to that crime is higher in the city. Basically as people emerge from the lockdown. In two thousand twenty, murders and shooting shot up really dramatically. Other crime didn't. Now the murders and shootings are starting to decline a little. Other crimes are up, but it's still miles away from the sort of homicide rates that New York had in the nineteen eighties or early nineties. Some big cities it is back to about as bad as it was then, Philadelphia, Chicago. But it's kind of funny, is not New York, not l A, which seemed to be the place is getting the most publicity about crime exactly. So you write that the rate is still less than a fifth of what it was in I think a lot of people would be really really surprised to hear that, but it's not the case all over the country. You dug into the CDC's wonder databases. Tell us a little bit about these wonderments. Yeah, I I mean, I'd heard about them before the pandemic, but I first waited into them sadly not long after the pandemic started. And um, it's a remarkable, if pretty confusing at first, set of databases that, among other things allow you to just look at all causes of death in the US. You can sort it by cause of death, you can sort it by place, you can sort it by year, you can sort it by demographic groups. And of course you did all of that, and what conclusions did you come to in terms of things like location and how that matters, or incomes and how that matters. Well, what I did for this particular exercises, I was looking at homicide rates. Normally it's the suburban counties and large metorias have the lowest homicide rates most years. New York City has had actually fallen below even that for a couple of years before the pandemic. Since the pandemic it's slightly higher. But you know, New York City has a lower homicide rate than rural America. Even now, subdansolutely lower. And then I just started thinking about one of the things people are very concerned about right now and with reason, is that the subways seems more dangerous than it was a couple of years ago, and it is more dane dress than it was a couple of years ago. Basically, overall crime levels in the subway about the same, but ridership is about less so if you're riding at the higher risk of crime, I think this way, and I think a lot of people don't. But when I think about the subway and the risks I faced in there, I also think about things like tee, what if I had to drive on the freeway in Houston all the time. You throw in transport accidents, which is a grab bag of mostly car crashes, but also I guess you could tip over your tractor or whatever. And you put the two together and suddenly New York City goes to being much safer than any other broad classification, three times safer than rural and small town America. Brooklyn and the Bronx come in a respectable forty one, twenty seventh place in the country's mortality rankings. Did you expect that? Um? I was a little surprised, and that the difficulty. One of the things that the CDC does is it knows everything about mortality, but it won't tell you everything. So if there are fewer than ten deaths in a county, it just doesn't disclose it at all because it is afraid that you can figure out who they were. So what I did, I then went beyond traffic accidents and looked at other external causes of death, which you know. You look through the list and there's things like being bitten by a snake or drowning in the pool, and most of those seem less likely to befall you in New York City than other places. They're bitten by rats is in there too, which yeah, exactly, I didn't actually didn't look up that specifically, So so I came up with with some tweaking and such a sort of list of deaths from external causes that aren't things that basically just hit old people like falls. And when you do that list, what you get is the counties with the lowest mortality rates include a lot of yeah, Brooklyn, the Bronx, a bunch of wealthy suburban counties, and definitely New York City and the New York Metropolitan Area. You are among the safest places in the country overall. The police officer's job is not to find out what is the psychological profile, what is if the person has the issues at home? That's our job as a city. Their job is to take dangerous people up the street. My job and the job of my agencies is to prevent people from being dangerous. What should the mayor be doing. He comes out and he gives press conferences, he talks a good game, he obviously has good intentions. At the same time, attitudes aren't changing, behavior isn't changing, and there's still such a huge question mark over remote work and whether it's necessary or not to go into the office. And this isn't the answer to all of that. I mean, things have been getting worse in New York over the past couple of years. It looks like the murder wave is fading, but other kinds of crimes are up. And so, you know, it's someone who felt comfortable coming into New York four years ago, it's reasonable that they might feel a little less comfortable now. What is just so striking, though, is when you look at it and you have this broader view of what risk is than just violent crime, you know, and there are arguments for and against doing it that way, then New York is a really safe place, one of the safer places you can be in this country. Some of the received wisdom is still true, unfortunately. For example, of the city of Baltimore's homicide rate is still a staggering fifty eight and a half per one thousand residents. That's twice that of Chicago and more than ten times New York cities. As you point out, so there are other places where it's urban crime is not a myth, and you know, crime in New York is not a myth. But it's just it's so much lower than in other cities, and in a lot of places that aren't big cities, And as Justin points out, even the safest areas in the US remain killing fields compared with most of Western Europe. In Paris, for example, a homicide rate in recent years below one per one thousand. Don't forget get in touch via Twitter at Vonny Quinn or email v Quinn at Bloomberg dot net. Opinions and comments always welcome. So if you're not going into the office for whatever reason, you might be repeating a pattern from past eras. Let's get to University of Georgia history professor and Bloomberg opinion columnist Stephen men So, Stephen, telecommuting has obviously been around for a long time, but we don't often think about its origins. Talk to us a little bit about how it developed in the first place. So it goes back to a kind of heady period in the sixties when some urban planners and theorists of urban life who were concerned about traffic congestion, especially in places like Los Angeles, began to think about whether it might be possible to substitute communication for transportation, in other words, had people to communicate with their offices rather than commuting to their offices. It began with a couple kind of obscure articles and academic journals, as movements oftentimes do, and then in the late nineties sixties there was a good illustration of some of these concepts that the government sponsored, not because it was trying to prove that telecomedian could work, but it was trying to do something else, namely, run the space program right. And so the system emergence from the Apollo moon landing program explained to us what it is right. So the Apollo missions were extraordinarily complex, and they linked to all of these different contractors and mission control areas and military people across the country, and so these people had to communicate in real time, and you couldn't just keep flying them back and forth across the country. So the several government set up these things called Apollo Action Centers, which were prototypes of a kind of telecomeeting, meaning that people in different parts of the country would gravitate towards their local control center and tapped in via this two way speaker phone connection that the government set up that worked at fifty per second for communicating data, which is one of our current upload speed. And after they finished it, they did a cost assessment and they realized that they had, say, for a dollar, they plowed into this nine dollars and travel and salary costs, and so that was pretty dramatic. And so one of the people who had worked for NASA was this guy Jack Nillis, who was a rocket scientist, kind of worked on classified projects. We don't even know what he did, honestly, but he went to University of Southern California, which was of course traffic congestion central, and it was there that he took command of a team of people who wanted to figure out if there were a way to kind of implement some version of this for civilians, and they came up with this pilot program with an insurance company where they did the exact same thing, but in l A it wasn't people working from home. It was people coming to like the nearest node and they would commute in to the central office, but over phone lines and eventually computer lines, because it was at that moment that all of this technology, computer networks like arponnet to, the technology came online. Right, And if you would ask me, I probably would have mumbled something about telephone networks or as you said, the diminishing size of computers, or maybe even the rise of skyscrapers and inner city living. But in actual fact, when it really took hold was in response to the OPEC oil embargo, as you point out in nineteen three, right, And so these guys were doing this project and all of a sudden, everyone wants to save money on gasoline, and there they are. They've got a solution, you know, like don't go into the office. That was the first iteration of teleco meeting was a kind of dispersal of the workforce as opposed to like total diffusion where everyone's working from their home. Now, I'm curious unions were a lot stronger back in the day and more prevalent in the workplace then, So how did unions react. Was this something that they reacted to positively or negatively? Rather negatively, As soon as telecom meeting became chicked, around in policy circles, unions like the A f l C. I Oh said, well, you know, wait a second, there's some peril here, because how are you gonna force workplace safety at home? You know, when someone trips over the extension cord, are they on on the company's workmen's comp are they Is it just their faults? So there are all these things that they criticized, but the real criticism actually, interestingly came eventually from an unlikely source, which was management. How is that unlikely? Well? True, Well, you think about management. If given an opportunity to stay money, they would take it right. But the idea of letting their employees work off site, that was worrisome. But that didn't stop a lot of futurists in the late seventies, people like Alvin Toffler, from counting the vision that we would by the end of the nineteen eighties all be working at home and what he called our electronic cottages. We all electronic cottages. I like that. What, though, did we find out conclusively about productivity and expense reduction? That's an excellent question and one that it depends on who you talked to. The early research church and much of the later research suggested that in fact, there were productivity gains for that pool of employees that was somewhat self selecting who worked from home. So, in other words, in the seventies and eighties and even well into the outs the pandemic, though, case studies that are coming out of that suggests something else happened, which is the productivity actually went down and that there were other problems with cohesion of workforces. This is probably easier to square than it sounds, namely that like, if three percent of your workforce is working off site and they're really well suited for that kind of work, fine, But when you take everyone and send them home to their electronic cottages, to Toffler's phrase, a lot of them are trying to contend with everything from like walking the dog, caring for toddlers, to doing everything else that they really would prefer not to be doing while they work and previously had divided. So there may be ways in which these two experiments, the experiments of early telecommunititting and the pandemic experiment, are really apples and orange in terms of well the other thing, And these are very much ongoing investigations. How much did cities and do cities and their planners have a say in the remote versus in office workplace debate. That would seem like they would want to have a say. And obviously some cities are very much suffering post pandemic because of remote work. Other cities are thriving. Is there a conclusion on that. There isn't a conclusion, But you're absolutely right that for urban planners this is extraordinarily disruptive because there are ways in which obviously this hurts central business districts if people ceased to come in at the same time, though it could also create massive demand for services in more decentralized, scattered nodes. So it's there are ways this could play out that are really kind of in many cases, perhaps even counterintuitive. So, for example, we think of how telecommuting limits traffic congestion. The flip side of that is, if everyone can go anywhere at any time, you're also maybe putting a kind of constant lower level of congestion on the traffic rid at all times, and that could in a way be very disruptive in its own right and hard to plan for. Just on all of this, thinking back to the competition for the new Amazon headquarters, it almost seems quaint. It almost seems like a waste of resources for local governments to be doing things like offering incentives in an era of remote work. Yeah no, because think about it in terms of what if the jobs that you're bringing here are being performed by people like you bring them here, and then they end up being performed by people in another stage. There are all sorts of ways in which this messages with a lot of the usual incentive structures that we think about when it comes to cities and attracting economic growth. Stephen Mims There, So you're working from anywhere and you're making a quarter of a million dollars, sounds perfect right, Well, Alexis Leander's dug into some data which show more than a third of you are that paycheck to paycheck sounds startling. Well, let's hear more from Alexis herself. So, Alexis, how on earth can you be making a quarter of a million dollars a year and still be living paycheck to paycheck? I know it sounds absurd. I mean, you know, just to put it in perspective, two hundred fifty thousand dollars is almost four times the media and US salary and put those earners in the time top five percent of all earners in America. So to hear so many according to this survey that I highlighted in my column, one third of them, more than one thirty six percent of them say that even with that kind of income, they're basically spending everything they make each month and living quote unquote paycheck to paycheck is very unnerving. Does this have anything to do with the pandemic working from home large item expenses perhaps, or or perhaps people were eating out or getting take out more because they potentially had a more flexible schedule. That's a good question. I don't know if it's so much without remote work, but I do think housing is one of the big culprits. I think with housing, we've seen mortgage rape sky rocket, We've seen home prices appreciate so incredibly much. So I think when you take those two things together, and especially for this high income group, they tend to probably leverage themselves. And because of that, I think housing is one of the reasons folks and missed cohort are feeling so stretched. Is there a need to put in a bit of a caveat that this might be a bit of an inflation story as well. Are we definitely seeing the impact of inflation on these salary earners? Definitely, And I think it ties into what you've said before, which is we're also seeing people who because they were home, you know, at this level, they're starting to travel more, they're starting to eat out, they're starting to do more things. So all of these things are kind of happening at the same time. And right now they've been lucky enough to have their student loan payment on hold, um, but that's going to change soon. So that's something really people have to start thinking about and budgeting for. That was really eye opening. So hundreds of dollars a month that would have been potentially coming out of that salary is on moratorium because they're taking advantage of the student loan repayment moratorium. So what happens when that takes back in again, ssuming it does right? Right? I mean, student loan debt for this for this crowd is a very big deal. Um. More than of total federal student loan debt is held by households with incomes from about a hundred thousand dollars to three hundred seventy five thousand dollars and that's the largest percentage of any income group. So so many high earners have professional or doctorate degrees. So if you're an average student or your you went to graduate school, and if you take your undergraduate loans coupled with your graduate student loans, you could be looking at total debt is more than eighty two thousand dollars. That means monthly payments about nine fifty dollars a month has been on hold for almost thirty months, which is terrifying given that rents are going up in big cities as well as this potentially coming back into play for these people. I mean, it's terrifying within reason. We're talking about people who are in a quarter of a million dollars here, so let's be too concerned. But you do have to wonder if they're making four times the median wage in the United States, what are those earning less than that doing to finance their lives? Exactly right, exactly right. I mean I think the big difference again is mortgage, so homeownership versus renting. A lot of people who are making less money, they don't have to deal with rising mortgage costs, but they do have to deal with rising rents. So that's obviously something that has to be factored into it. And I just want to point out one key detail of this group. These people who are making at least two hundred fifty thousand dollars, who say they're living paycheck to paycheck. They're able to still pay their bills, but the bills that they're paying include automated savings for things like retirement in college plans. So it is really important when at least when I think of paycheck to paycheck, to me, that's someone who whatever they're earning, they're spending basically on housing food. These people, that's not necessarily the case. They are doing things that ultimately will help them in retirement or their kids college plans down the line, and that is a huge covey out because those are things that catch lower income earners out later on in life, and it's very difficult. The other thing that I wanted to point out here is revolving loans credit card dead These people not necessarily suffering late fees or anything like that, because they do tend to pay off any credit card debt that they incur exactly right. That was kind of surprising to me because you would think if you're living paycheck to paycheck. And even among this cohort, there are those who are living paycheck to paycheck and aren't even able to pay all of their bills. So you would think someone be turning to credit cards. But according to a survey by payments dot Com and the Lending Club, for those who say they're earning at least two hundred fifty thousand dollars and are living paycheck to paycheck, six of them are saying they're not revolving a balance, so they're paying off their credit card balances in full every month. That said, though, there was a said report recently that said the end of student loan forbearance could lead to a deterioration and credit risk profiles for borrowers. It didn't look at specific income levels, but again it's just worth raising. So far, this group doesn't seem to be turning to credit cards to plug the gap, but will that continue once these student owned payments get turned back on Alexos? Was there any question asked about what happens if we do see a recession or if we start to see unemployment go up once again. So we're in a very tight labor market and a very labor friendly labor market. That's that's a great point that right now, it still seems like despite what consumers, especially at the higher end, maybe saying about being pessimistic with respect to their finances, they're still spending. You know, maybe they've rained in, they're spending a month, but they're still spending a bit above average. Once that starts to turn, and especially if we start to see some labor market changes, that's I think one will start to get worried, and you know, then maybe those credit card dances will start to go up. Alexis Leanders do get in touch with comments and opinions. I'm at Vonnie Quinn on Twitter or email v Quinn at Bloomberg dot net. Stanley drucken Miller told investors at the sone conference this week where maybe six months into a bear market and predicting a soft landing means going against decades of history. Yet more people are seeing the possibility, including Pimco's Tony Krisenzi. It does seem like the odds of a soft landing are reasonably good, but it's tough to manage what the federal reserve, of course, is to avoid an outright recession. I had a chat with John Authors, who's been warning that even if the FED does accomplish a soft landing doesn't mean it won't get ugly for investors. John, there does seem to be a little optimism out there, whether it's warranted or not, that the FED will be able to thread the needle and pull off a soft landing. But you point out the risk of a stock market hard landing is there and to be taken very seriously no matter what happens with the economy. Yes, that's true, and the same is also true of the of the credit market. If a soft landing means the FEDS getting rates up to say three three and a half percent, and successfully bringing inflation down while growth slows down, but we avoid outright contraction, and I think most people would deem that a pretty big policy success on the soft landing at this point, then that implies some pretty nasty things for profit margins, which are historically high. Companies are doing extremely well out of the amount of operating leverage they have at the moment. You explain that was a little sidebar, because how our profit margins widening when everything else seems to be contracting except for prices. Obviously, I mean, I guess there's your answer. Right. So far inflation has helped companies. Yes, inaggregate, there are obviously something have suffered, but generally speaking, they have had enough pricing power to pass on costs to the consumer. That means that the inflation problem continues, but profits so far aren't badly affected. And obviously those companies that really have had a problem passing on prices been punished very aggressively. Now you are at a point where I think there's a number of factors behind this. You could get into the political issue of whether it's due to the lack of antitrust and the fact that there's limited competition these days, but low rates is a very big part of it. If you can borrow as cheaply as you've been able to for the last decade or so, it's that much easier to make a profit on what you sell. And it does seem like in podcasts aren't going up as much, and that basically means if the FED successfully engineers are soft landing. That does involve companies having to pay more to borrow for quite an extended period of time and finding it that much harder to pass costs on, and that comes out of their profits. Now they have been borrowing, yes, frenetic rates, and as you point out, you know, companies with strong balance sheets are maybe not even exactly in fashion these days. Will they even need to borrow for a while, That would be It would be nice if they didn't. The problem I suspect is that a lot of companies are working on the assumption that they can roll over their debt pretty quickly, So the rate may not matter so much. It's whether the availability of credit to roll over loans once they come due that could be much more of an issue, because that's the way you get into suddenly having to pay a higher rate and finding it much harder to do that. Now, that does become an issue because the market has been rewarding companies for paying at dividends, for doing stock by backs, generally things that don't help you strengthen up your balance sheet. If you have protracted higher yields, and again we're not talking stagflation pull vulca. If you're just talking about yields staying where they are a little bit higher for a year or two, that very much changes the mathematics for companies. And what happened to the idea of the fortress balance sheet. That's an interesting one. I think partly you do have an array of companies brought to an extent that they became overpriced on the back of the strength of their balance sheets. One of the great appeals of the fang stocks was that they were seeing almost as a modern day equivalent of treasury bonds, in that you were so confident that nothing was going to go to wrong there. They were going to keep making profits and they had barely any debt. Suddenly I go on faces everywhere, well, well yeah, so so, but there's still none of those companies I just mentioned is going to go bust anytime soon. I'm prepared to say that one on the record. Yeah. And so it's important to say that the fact that weak balance sheets companies are actually out performing strong balance sheet companies quite significantly this year, which is an extraordinary thing to happen when rates are going up very sharply. That's in some parts of perverse reaction to the fact that people have noticed they paid too much for the fangs, and the fangs have been falling very sharply. So having discovered this fascinating factoid that weak balance sheets are actually doing well. I perhaps should admit that part. However, you would think weak balance sheets companies would be pummeled at this point because plainly the mathematics the arithmetic from is getting much worse, and that hasn't really happened. Not only that, but you also took a look at historic defold rates and published by the deutste Bank team once a year, and you found that even if recession arrives, really only looking at a peak specutt of default rate of about ten percent in the United States according to Deutsche Bank. I mean, that's not a lot, and that doesn't allow for much creative destruction. As you point out, Yes, that is an argument that I have some sympathy with. I'm not sure how far I'm prepared to go. But the argument of the people and what you might call the Austrian school of economics who believe in Shampeterian creative destruction is that the succession of bailouts, the very low rates that we've had for twenty years have led to a flabby, relatively uncompetitive, inefficient form of capitalism, because companies that ought to have gone bust by now are surviving and hogging capital that could be better used by somebody more innovative, and that does play very much into the whole idea of the industrialization and inequality. It makes it that much harder to create jobs for lots of people, and it means that those who are lucky enough to own stock do very well. So there's certainly a very good argument that a higher default rate would actually be helpful. What happens this time? Does the fair manage to do it? Pull off the soft ending and to get back to Tony Kristenzi's point, a growth recession and sues, I think that possibility is rising. I'm not sure I would go along with Tony Krishnzi to the point of saying that it's more likely than any other option, But certainly, if you look at the latest unemployment data, claims and so on, you do have some inkling that the employment market maybe calming down somewhat without turning brutally negative. And it's also possible that you'll see inflation numbers begin to down. However, I still think this is going to be a very very difficult landing. You know, it is possible, and they're still just about on the path that would take them there, but it's narrow and it will be easy to be knocked off. Course. The biggest risk by a big margin is oil almost back to the highs in the first few days after the invasion of Ukraine. If that carries on, if the politics of OPEC don't deliver a cut, and if the geopolitics of the situation work out in one of the worst ways that seems possible at the moment rather than better ones, and oil gets up towards a hundred and fifty, that's problematic. That affects everybody's costs. It either destroys demands or it puts up inflation, and the political situation even harder as well than because you know the president will be blamed for it, and maybe he will engineer or something. Well, he has to try to do something, because the history is very plain that gas prices, particularly in this country where we are the states, are more important than far more important in fact, than their weight within the index. Their weight within people's actual budgets should dictate because they're so variable and they're so visible. You make your purchases regularly, you're aware of the price because it's literally they're in big numbers by the side of the road. It is so salient and so clear, and that means obviously it's one of the areas which the FED really has no control over at all. It does seem like there's a lot of it doesn't have control over these days. So as well, it's not just oil that's problematic Ukraine wise, it's also food and it's also you know, also something yes, the things that that well, yes, And though those things are very important, and there are alarming possibilities of you've seen Peru and you've seen Sri Lanka, some bigger emerging economies might yet see civil unrest over very high food prices. There's form for that. Arguably, the Arab Spring was lit by high food prices ten eleven years ago, and that has to be clear. I personally care more about the human beings who would be affected by that. But if we're being dispassionate and talking about it as an investment, that's also potentially very bad for the supply of certain commodities. The fact that certain commodities that are needed only come from places that have a problematic relationship with the West. You know, cobalts is from the democratric public of Congo, Lithium is Olivia. These are not places you would feel very comfortable about if you get the kind of unrest that is easy to imagine in places like that, that really messes up the attempt to move to electric cars, improve battery technology and so on. So yes, there are very great risks to the soft land thing for reasons that are beyond the fits control in terms of those things that are within the fetes control having allowed themselves to get blown badly off course, you know, the last month or two has moved in a direction that would have them feeling reasonably comfortable that things are consistent with their eventually landing softly. And of course the ECB is going to start raising raids soon as well, which won't hurt well that we haven't gotten there yet, but if that begins to weaken the dollar, that also helps avoid some of the really nastier knock on effects that are possible in the developing world. Yes, John, authors there, do get in touch to continue this conversation. I'm Att Vonnie Quinn on Twitter or email v Quinn at Bloomberg dot net. That does it for a Bloomberg Opinion. This week, we're produced by Eric Mollowe. Until next time, I'm Bloomberg opinion,

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